AN INTRODUCTION TO BENCHMARKING

Introduction

The purpose of this document is to provide a general introduction to benchmarking. It reviews what benchmarking is, why we need to benchmark, the types of benchmarking that can he used and illustrates the major steps involved in a benchmarking project.

Links to other best practices and training at bottom of page.

What is benchmarking?

Benchmarking is the continuous search for and adaptation of significantly better practices that leads to superior performance by investigating the performance and practices of other organisations (benchmark partners). In addition, it can create a crisis to facilitate the change process.

Benchmarking goes beyond comparisons with competitors to understanding the practices that lie behind the performance gaps. It is not a method for 'copying' the practices of competitors, but a way of seeking superior process performance by looking outside the industry. Benchmarking makes it possible to gain competitive superiority rather than competitive parity. The term benchmark refers to the reference point by which performance is measured against. It is the indicator of what can and is being achieved. The term benchmarking refers to the actual activity of establishing benchmarks and 'best' practices.

It must be noted, however, that there will undoubtedly be difficulties encountered when benchmarking. Many of them are detailed in the corresponding document "Guide to Benchmarking" under "factors to be aware of". Significant effort and attention to detail is required to ensure that problems are minimised.

Why do we need to benchmark?

There are many benefits of benchmarking. The following list summarises the main benefits:

• provides realistic and achievable targets
• prevents companies from being industry led
• challenges operational complacency
• creates an atmosphere conducive to continuous improvement
• allows employees to visualise the improvement which can be a strong motivator for change
• creates a sense of urgency for improvement
• confirms the belief that there is a need for change
• helps to identify weak areas and indicates what needs to be done to improve.

For example, quality performance in the 96 to 98% range was considered excellent in the early 1980's. However, Japanese companies, in the meantime, were measuring quality by a few hundred parts per million by focusing on process control to ensure quality consistency.

Thus, benchmarking is the only real way to assess industrial competitiveness and to determine how one company's process performance compares to other companies'.

Types of Benchmarking

There are four types of benchmarking. They are not mutually exclusive and companies can choose any one or a combination to meet their objectives. It is recommended that strategic benchmarking is conducted first to create a context and rationale that will enhance all other benchmarking efforts.

Strategic Benchmarking

Concerned with comparing different companies' strategies and assessing the success of those strategies in the marketplace.

Analyses the strategies with particular reference to:

• strategic intent
• core competencies
• process capability
• product line
• strategic alliances
• technology portfolio

Should begin with the needs and expectations of the customer. This can be achieved through surveys to measure customer satisfaction and the gaps between a company's performance and its customers' standards.

Ensures a co-ordinated strategic direction regarding benchmarking and reduces the possibility that one improvement project will cancel out the effect of another. Benchmarking candidates are normally direct competition.

The main difficulty is persuading the benchmark partner to discuss their strategy. However, there is a great deal of information which can be obtained from customers, common suppliers and public domain information.

Functional Benchmarking

• Investigates the performance of core business functions.
• Does not need to focus on direct competition but, depending on the function to be benchmarked, the benchmark partner may need to be in a similarly characterised industry for useful comparisons to be made.

Best Practices Benchmarking

• Applies to business processes.
• It breaks the function down into discrete areas that are the targets for benchmarking and is therefore a more focused study than functional benchmarking.
• Some business processes are the same regardless of the type of industry.
• Attempts to benchmark not only work processes, but also the management practices behind them.

Product Benchmarking

• Commonly known as reverse engineering or competitive product analysis.
• Assesses competitor costs, product concepts, strengths and weaknesses of alternative designs and competitor design trade-offs, by obtaining, stripping down and analysing competitors' products.

The four different types of benchmarking are evolutionary beginning with product, through to functional, process and strategic. For the purposes of this document and the corresponding document 'Guide to Benchmarking' best practice benchmarking will be used due to its focus on processes. As benchmarking is becoming more widespread and companies are more proficient in its use, best practice benchmarking is becoming increasingly popular. This is also reinforced by the move away from functionality in organisations towards business processes. For further information on the other types of benchmarking, see the references to Watson, Camp and Miller.

Conclusion

Benchmarking must be a continuous process with the extent and scope of the project being dependent on the resources that the company has available.

The above key steps to benchmarking are detailed further along with a list of factors to be aware of in the companion document 'Guide to Benchmarking'.

Key steps to benchmarking

Based on our research and experience we would recommend the following stages in your Benchmarking projects:

1. Identify what to benchmark
2. Ensure management support and involve all stakeholders
3. Select the benchmarking team
4. Analysis of internal processes
5. Identify companies to benchmark
6. Decide on method(s) of data collection
7. Collect public domain information
8. Analyse collected information to establish what other information needs to be collected
9. Establish contacts with benchmark partners
10. Plan the actual visits
11. Conduct the benchmarking visits
12. Establish whether a performance gap exists
13. Predict future performance levels
14. Communicate benchmark findings
15. Establish targets and action plans
16. Gain support and ownership for the plans and goals
17. Implement the action plans, measure performance and communicate progress
18. Re-calibrate benchmarks
19. Adopt benchmarking on a company-wide scale

 Prepared by:

Amanda Davies- UMIST (Now of Avro International Aerospace)

Mike Kennerley- UMIST (now of Cambridge University England)

Professor AK Kochhar- UMIST (now of Aston University England)

Mike Thacker- SM Thacker & Associates

Keith Oldham- Lucas advanced Engineering Centre (Now of Coventry University England)

Steve Oliver - Avro International Aerospace

Further Reading

Bernowski K, "The Benchmarking Bandwagon", Quality Progress January 1991, Volume 24, Number one, p19-24.

Camp R C, "Benchmarking -The Search for Industry Best Practices that Lead to Superior Performance", ASQC Quality Press, 1989.

DTI, "Best Practice Benchmarking - An Executive Guide", 1992.

Miller J G, Meyer A & Nakane J, "Benchmarking Global Manufacturing", lrwin, 1992.

Tomas S, "How To Get The Most Out Of Benchmarking The Motorola Way", 35th International Conference Proceedings of the APICS, 1992, October 18-23 1992, Montreal, Canada, p22-26.

Watson G, "Strategic Benchmarking - How To Rate Your Company's Performance Against the World's Best", John Wiley and Sons, 1993.

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The above paper was produced as a part of the 4-year UK EPSRC funded research project into Performance Measurement & Benchmarking of manufacturing control systems. The following further companion guides are available on request:

• "Guide to Benchmarking" (electronic version)
• "Focused Improvement Systems"(electronic version)
• "Improving your business through effective manufacturing planning and control systems (Workbook- Mini Version)" (Paper only)

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The following further best practice articles were also mentioned in this paper:

Focused Improvement Systems

The following training workshops deal with Benchmarking::

S6 to S7 Benchmark training

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© SM Thacker & Associates 2000